Audit 413145

Criteria: Management is responsible for establishing and maintaining effective internal controls over financial reporting to provide reasonable assurance that financial statements are prepared in accordance with generally accepted accounting principles (GAAP) and are free from material misstatement. Condition: The Organization did not maintain effective internal controls over financial reporting and the year-end closing process. During the audit, material adjustments were required to properly record financial statement balances and disclosures. The adjustments affected several financial statement areas, including accruals, receivables, and advanced collections. In addition, certain account reconciliations were not performed or reviewed on a timely basis, and management review controls over the financial reporting process were not operating effectively. Cause: The deficiency was caused by significant turnover in key accounting positions, inadequate segregation of duties, lack of formalized accounting procedures, insufficient review of financial information, limited cross-training among accounting personnel, and failure to perform and review account reconciliations on a consistent basis. The Organization relied heavily on a limited number of individuals to perform critical accounting functions. Effect: As a result of these deficiencies, material misstatements were not identified and corrected by management during the normal course of operations and required auditor-proposed adjustments to present the financial statements in accordance with GAAP. Recommendation: We recommend the Organization strengthen its financial reporting controls by implementing documented month-end and year-end closing procedures, performing and reviewing account reconciliations on a timely basis, improving segregation of duties where practical, enhancing cross-training within the accounting department, and establishing formal management review procedures over significant accounts and financial reporting activities. We noted that subsequent to year-end and prior to the commencement of audit fieldwork, the Organization implemented a number of these controls and process improvements. Views of Responsible Officials: Management agrees with the finding and has implemented corrective actions, including strengthening accounting oversight, improving reconciliation procedures, documenting financial reporting processes, and increasing cross-training within the accounting department.

Federal Program: Coronavirus State and Local Fiscal Recovery Funds (ALN 21.027) Criteria: In accordance with 2 CFR §200.303, non-Federal entities are required to establish and maintain effective internal controls over Federal awards that provides reasonable assurance the entity is managing the Federal awards in compliance with Federal statutes, regulations, and the terms and conditions of the Federal award. Condition: The Organization did not maintain adequately documented internal controls over compliance for the Federal program. Written policies and procedures were not maintained for several compliance areas, including procurement, cash management, allowable costs, and cost allocation methodologies. In addition, significant turnover among personnel responsible for program administration contributed to inconsistent documentation of compliance-related procedures and responsibilities. Cause: The deficiency resulted from significant personnel turnover, limited formalization of compliance processes, and insufficient documentation of internal controls and compliance procedures. Effect: The lack of documented policies and formalized compliance procedures increases the risk that noncompliance with Federal requirements could occur and not be detected in a timely manner. Recommendation: We recommend the Organization develop and implement comprehensive written policies and procedures addressing applicable Uniform Guidance requirements, including procurement, cash management, allowable costs, and cost allocation. Management should also establish documented compliance monitoring procedures and provide training to personnel responsible for administering Federal awards. We noted that subsequent to year-end, the Organization developed and implemented several written policies and procedures addressing many of these compliance areas. Questioned Costs: None. Context: Audit testing did not identify any instances of noncompliance with Federal program requirements. In addition, dual-purpose testing identified certain informal controls that were operating during the period under audit. Accordingly, this matter is reported as a significant deficiency in internal control over compliance and does not result in material noncompliance with Federal program requirements. Views of Responsible Officials: Management agrees with the finding and has formalized and documented compliance policies and procedures and provided additional training to personnel responsible for Federal program administration.